National insurance cut for employees and directors
From 6 April 2024, employees across the UK will benefit from a significant reduction in National Insurance contributions, and the changes are equally welcome news for company directors. This cut represents one of the most substantial employment cost reliefs in recent years, potentially putting hundreds of pounds back into workers’ pockets annually. Whether you’re an employee, director, or business owner, understanding how these changes affect your payslip and bottom line is essential. Let’s walk through what’s changed and what it means in practice.
The threshold increase explained
The primary driver of this National Insurance relief is a substantial increase in the threshold at which employees start paying National Insurance. From 6 April 2024, the Secondary Threshold (for employers) and Primary Threshold (for employees) has risen to £12,570 per annum.
For employees, this means you won’t pay National Insurance on earnings below this amount. Previously, the threshold was £10,927, so there’s been a meaningful jump. In practical terms, if you earn £15,000 per year, you’ll now only pay National Insurance on £2,430 of your income rather than £4,073. That’s a saving of around £129 per year based on the current 8% employee rate—small perhaps, but welcome.
For employers, the Secondary Threshold increase is equally significant. You won’t pay National Insurance contributions on the first £12,570 of each employee’s earnings. This reduces your payroll costs substantially, particularly if you employ staff on modest salaries. The combined effect across a team can be considerable.
What does this mean for directors?
Company directors operating through a limited company structure should pay particular attention. If you pay yourself a salary, you benefit from the same threshold increases as other employees. Many directors have historically paid themselves a salary of £9,100 (or similar low figures) to avoid National Insurance whilst extracting additional profit through dividends.
With the threshold now at £12,570, the tax efficiency calculation has shifted. You might now choose to pay yourself a higher salary—perhaps closer to the personal allowance limit of £12,570—whilst still making National Insurance savings compared to the previous position. This could simplify your payroll administration and reduce the need for complex dividend extraction strategies.
However, this isn’t a one-size-fits-all recommendation. If you have employees, raising your own salary without reviewing their arrangements may create fairness questions. Additionally, pension contributions and other factors still play a role in structuring director remuneration. We’d recommend reviewing your individual circumstances.
Calculating your personal savings
Let’s look at a concrete example. Suppose you’re an employee earning £25,000 annually:
Before 6 April 2024:
- National Insurance payable: (£25,000 − £10,927) × 8% = £1,125.84
From 6 April 2024:
- National Insurance payable: (£25,000 − £12,570) × 8% = £989.60
Your annual saving: £136.24
Whilst not a fortune, multiply this across millions of employees and the cumulative economic benefit becomes clear. For higher earners above the Upper Earnings Limit (currently £50,270), the benefit is less dramatic, though still present.
For employers, the Secondary Threshold increase means reduced employer National Insurance bills. If you employ someone on £20,000:
Before 6 April 2024:
- Employer NI: (£20,000 − £10,927) × 15% = £1,360.95
From 6 April 2024:
- Employer NI: (£20,000 − £12,570) × 15% = £1,114.50
Your saving: £246.45 per employee annually
Again, for larger payrolls, this accumulates meaningfully.
What about Self Assessment and self-employed individuals?
If you’re self-employed, the primary threshold increase doesn’t directly apply to you. However, Class 2 National Insurance (a flat rate of £163.80 for 2024/25, payable if profits exceed £6,725) and Class 4 contributions remain relevant. Self-employed individuals should still benefit from broader economic conditions but should review their National Insurance planning separately.
Moving forward
These threshold changes take effect from 6 April 2024 and remain in place for the 2024/25 tax year. HMRC has updated its payroll software to reflect the changes, so most payroll providers will handle calculations automatically. However, it’s worth double-checking your payslips to ensure the correct amounts are being deducted.
If you operate a limited company and need to reconsider your salary strategy, or if you’re simply keen to understand the full impact on your finances, now is the time to review. These changes represent genuine relief for working people and businesses alike.
For tailored advice, contact Severn Accounting — we’re here to help.